April bulletin from Trading On The Mark
Some of the moves we have been watching in currencies may be nearing completion, and it is time to assess where and when the next trades might be. In particular, we see reasons to lock in profits from existing long trades in futures and ETFs related to the Japanese Yen and the British Pound. There should be opportunities to find short trades with both currencies during the next few months.
The British Pound jumped rapidly last week with the U.K.’s announcement that there will be a “snap” general election in June. The Pound’s rally represented an upward pullback in what has otherwise been a strongly trending downward move. While the jump seems to have caught many traders off guard, those who were following our charts probably were prepared for it.
The spike took price near the first resistance level we had been watching from earlier. Although we cannot rule out higher prices in the near term, the better trade might present itself during the next few months as a short set-up near one of the resistance areas shown.
We believe the Pound is moving through a modest upward/sideways correction that is sub-wave [iv] of a five-wave sequence down from the 2014 high. The most prominent areas to watch for corrective wave [iv] to turn into downward wave [v] are near 1.2960 and possibly 1.3530, although some intermediate resistance levels between those two might also come into play.
Based on the channel we have drawn on the monthly chart and additional geometry on a weekly time frame, we believe the most probable timing for a turn is around June or July. We note that there is an FOMC meeting on May 3, the nonfarm payroll announcement on May 5, and another FOMC meeting on June 14.
An eventual downward wave [v] will probably reach into the area defined by the Gann square-of-nine support at 1.1160.
The related weekly chart shows the CurrencyShares British Pound Sterling Trust (NYSEARCA:FXB). We will be watching the levels defined by Fibonacci resistance near 126.50 and 132.20. Areas near those price levels may be especially reactive if they coincide in time with the lines of the modified Schiff channel that has fit price swings reasonably well in recent years. (For example, the dotted line representing a harmonic of the channel would coincide with approximately 129.50 near the end of June.)
Once a decline eventually takes hold, the zone near 110.30 represents the square-of-nine target in FXB that is equivalent to the one mentioned above for futures. We will be able to give our subscribers better fine-tuned targets for wave [v] of ‘C’ better after the wave [iv] correction is complete.
A bit more than a month ago, we emailed charts showing that a rally in the Yen and a related ETF had probably begun. At that time, there were still ample reasons to look for long entries.
In the time since our email, price has risen to approach our target zone. It might still travel a little higher, but this is probably the right basic area to start monitoring price spikes and looking for opportunities to close out portions of the long trade.
On the monthly chart for the CurrencyShares Japanese Yen Trust (NYSEARCA:FXY), note that price is approaching the main Fibonacci-based resistance zone that encompasses 90.10 to 91.60. As the current rally approaches that area, it continues to look like sub-wave [c] of the three-wave corrective formation that began in 2015.
A contracting range in a three-wave corrective pattern is a little bit unusual. More often, the [c] wave extends beyond the [a] wave in whatever direction the correction goes. However, other factors suggest that wave [c] of the current pattern might come up short, as we have sketched on the chart.
Although we cannot rule out the possibility that wave [c] will continue beyond the resistance zone and beyond the 2016 high labeled as [a], the dominant cycle in the Yen/Dollar cross suggests there should be some kind of downward turn near the middle of 2017 – possibly around June or July. The cycle has been very reliable for several years.
Another reason we favor a downward turn this year is that the U.S. Dollar appears to be nearing the end of its own sideways/downward correction. If the Dollar begins to rally during the next few months as we expect, that will put downward pressure on the Yen.
The weekly chart for Yen futures, below, shows areas of resistance calculated at a finer level of resolution. We have been following the 48-week cycle (11 month) cycle for several years now.
All the best to you!
Tom and Kurt at Trading On The Mark